I’ve been fortunate in that every employer I’ve ever worked for has offered a 401(k) defined contribution plan. I know that many people are not so lucky and reader Jennifer is one of them. Many smaller businesses can’t afford to set up a plan or simply don’t want to. Whatever the reason, Jennifer doesn’t have the option available to her. This week’s Help a Reader[3] will focus on the options available for someone without a 401(k) at work.

Here’s an excerpt from her email:

My employer does not offer a 401(k) plan and I know I need to start one soon, I’m in my early 20s. I know that I can open up an independent 401(k) but I’m not sure where to start or if a 401(k) is even the best option. Help!

Thanks,
Jennifer

I’m not an expert on the 401(k) but if you’re an employee, as in you get a W-2 from your employer, then you can’t open a 401(k) yourself. Independent 401(k)s are available to people who are self employed and run their own business or some other small business with a family member.

What Jennifer is thinking of is probably a Traditional IRA. When your employer does not offer a defined contribution plan, then your contributions to a Traditional IRA are tax deductible. The maximum you’d be able to contribute to a Traditional IRA, given your age, is $5,500 each year. It’s not as good as a 401(k), where you can contribute up to $17,500, but it’s better than $0.

The downside to this is that the Traditional and Roth IRAs share the same contribution limits. Your total contribution to Traditional and Roth IRAs cannot exceed $5,500. So if you contribute $2000 to a Traditional IRA then you can only contribute $3500 to your Roth IRA.

To the best of my knowledge, and I’m not an expert so someone chime in if you know better, this is your best option.